More MGAs seek capital partners on sidecars

A growing number of smaller insurers and managing general agents (MGAs) are seeking partnerships with alternative capital providers via structures such as sidecars—but they need to offer something unique yet reliable if they are to succeed in securing such partnerships.

That is the view of Martin Davies, chief executive of AHJ Capital Markets, who joined the broker a year ago to establish its capital markets presence. He told Monte Carlo Today that he is dealing with a number of smaller players seeking a presence in this market.

“We are seeking capacity for a number of companies at the moment wanting to launch sidecars,” he said. “They want to know whether capacity is available in the capital markets, and the answer is certainly: yes.

“But we also stress that it is not a limitless pool. Most investors interested in this space are already working with bigger players so they need to offer something different. They need to offer access to a different type of business and to be able to deliver on that.

“The last thing an asset manager wants is to raise funds but then not actually be able to deploy them. They want to see something unique: an exceptional underwriting record or a portfolio mix that offers them diversity, perhaps. They need to offer edge.”

The idea of MGAs accessing the capital markets is not unique. MGA Tamesis Dual is partnered with Credit Suisse Asset Management, for example. Nevertheless, such arrangements have been rare, partly because alternative capital prefers to work with short-tail business.

“More and more MGAs are seeking such arrangements,” Davies said. “It allows them to grow and investors are open to this if it is the right type of business. Many are pretty full on their US property-catastrophe allocations and that means they are seeking new areas to move into.

“They also need guarantees that they can deploy their capital. The challenge for us is finding the right risks and matching them with the right investors. But you are certainly beginning to see this dynamic move down the spectrum.”

Davies added that he is also working on other deals whereby smaller players are looking to raise equity or capital in another way, something that has been driven by Solvency II. “There are some types of subordinated debt that work well under Solvency II,” he said.